Banking Misdeeds Cost HSBC $1.2B, Others Less

WASHINGTON (CN) – On the heels of a $227 million forfeiture deal with London-based Standard Chartered Bank, prosecutors also signed a $1.2 billion deal with HSBC. Standard Chartered agreed to forfeiture Monday to avoid prosecution that it hid millions of dollars in the United States for sanctioned Iranian, Sudanese, Libyan and Burmese entities. The Tuesday deal with HSBC, another British bank, likewise concerned illegal transactions processed for sanctioned entities in Cuba, Iran, Libya, Sudan and Burma. Prosecutors said both banks waived the federal indictment, agreed to the filing of criminal informations and “accepted responsibility” for their criminal conduct. HSBC’s McLean, Va.-based subsidiary allegedly violated the Bank Secrecy Act by failing to maintain an effective anti-money laundering program and to conduct appropriate due diligence on its foreign correspondent account holders. The four-count felony criminal information filed Tuesday in the Eastern District of New York also alleged violations of the International Emergency Economic Powers Act and the Trading with the Enemy Act. Prosecutors say the bank’s actions facilitated the laundering of at least $881 million in drug proceeds through the U.S. financial system. In addition to forfeiting $1.256 billion as part of the deferred prosecution agreement with the Justice Department, HSBC has also agreed to pay $665 million in civil penalties. Those penalties bring $500 million to the Office of the Comptroller of the Currency and $165 million to the Federal Reserve. The OCC penalty also satisfies a $500 million civil penalty of the Financial Crimes Enforcement Network; the Justice Department forfeiture settles the bank’s $375 million settlement agreement with OFAC. Prosecutors herald the agreement as the largest penalty to date in any Bank Secrecy Act prosecution. Britain’s Financial Services Authority is pursuing a separate action against HSBC. The five-year agreement also requires the bank to enhance its anti-money laundering (AML) program. It has already replaced almost all of its senior management, “clawed back” deferred compensation bonuses given to its most senior AML and compliance officers, and has agreed to partially defer bonus compensation for its most senior executives – its group general managers and group managing directors – during the period of the five-year agreement, prosecutors said. The charges against HSBC say that it severely understaffed its AML compliance function between 2006 and 2010, and that it failed to implement an anti-money laundering program capable of adequately monitoring suspicious transactions and activities. Despite evidence of serious money laundering risks associated with doing business in Mexico, the bank rated Mexico as “standard” risk, its lowest AML risk category. This coincided with more than $670 billion in wire transfers and more than $9.4 billion in purchases of physical U.S. dollars from HSBC Mexico, “when HSBC Mexico’s own lax AML controls caused it to be the preferred financial institution for drug cartels and money launderers,” according to a statement from the Justice Department. “A significant portion of the laundered drug trafficking proceeds were involved in the Black Market Peso Exchange (BMPE), a complex money laundering system that is designed to move the proceeds from the sale of illegal drugs in the United States to drug cartels outside of the United States, often in Colombia,” it added. Investigators found that drug traffickers had depositing hundreds of thousands of dollars in bulk U.S. currency each day into HSBC Mexico accounts. The bank’s failures allowed cartels to launder at least $881 million in drug trafficking proceeds through its U.S. bank. HSBC’s lax controls allegedly date back to the mid-1990s. The Justice Department says this allowed approximately $660 million in OFAC-prohibited transactions to be processed through U.S. financial institutions. A criminal information filed with the U.S. District Court for the District of Columbia on Monday made similar allegations against Standard Chartered Bank. The filing accused the bank of illegally moving millions of dollars between 2001 and 2007 through the U.S. financial system on behalf of Iranian, Sudanese, Libyan and Burmese entities subject to U.S. economic sanctions. Such transactions would otherwise have been rejected, blocked or stopped for investigation under regulations by the U.S. Treasury Department’s Office of Foreign Assets Control. Standard Chartered agreed to forfeiture the same day as part of deferred prosecution agreements with the Justice Department and New York District Attorney’s Office. It has also settled with the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and the Board of Governors of the Federal Reserve System. Standard Bank’s conduct allegedly caused its New York branch and other unaffiliated U.S. banks to allegedly process at least $200 million in otherwise illegal transactions. The informations against HSBC and Standard Chartered say that both banks carried out their schemes by letting their sanctioned clients misrepresent themselves in payment messages. Prosecutors said Standard Charter’s conduct occurred primarily in the bank’s London and Dubai offices, with the knowledge and approval of the bank’s senior corporate managers and its legal and compliance departments. The bank allegedly misled U.S. regulators to evade economic sanctions. Prosecutors say it will recommend the dismissal of the information against Standard Chartered in two years as long as the bank fully cooperates with, and abides by, the terms of the deferred prosecution agreement. The $227 million forfeiture settles OFAC’s $135 million penalty, but the agency will also require the bank to review its policies and procedures and their implementation. Standard Chartered provides wholesale banking services, primarily U.S. dollar clearing for international wire payments, prosecutors say. The bank’s New York branch also provides U.S. dollar correspondent banking services for its offices in London and Dubai.